Facebook Volatility Providing An Opportunity In Some Leveraged ETFs

The data-sharing imbroglio involving Cambridge Analytica was a gift that kept on giving for traders using inverse leveraged ETFs tracking indexes with significant Facebook Inc FB exposure, including the Technology Select Sector Index, in which Facebook is the fourth-largest holding. 

The reaction to the scandal was obviously significant to the stock, at one point knocking out $80 billion in Facebook's market cap, but it also provided a trading opportunity for short-term traders, particularly in the Direxion Daily Technology Bull 3X Shares TECL, which tries to deliver triple the daily returns of the aforementioned Technology Select Sector Index, and the Direxion Daily Technology Bear 3X Shares TECS, which tries to mirror triple the daily inverse performance of that index. Not surprisingly, TECL and TECS were responsive to Facebook's woes.

Recent flows data suggest traders are comfortable betting on upside for TECL. Over the past month, the bullish leveraged tech ETF is hauling in more than $713,000 per day, according to Direxion data.

That does not mean TECS is being glossed over. That inverse fund is seeing average daily inflows of about $166,300 over the past 30 days.

“Reaction to Mark Zuckerberg’s testimony during the congressional hearing was mixed,” said Direxion. “Privacy and security advocates were disappointed by the lack of clear company action taking place after the hearing. But traders have seemingly found some solace in the promises made by the CEO, as shares have since regained over half their losses from the March low.”

Why It's Important

For the obvious reasons that Facebook is the largest U.S. social media company and one of the largest technology firms of any stripe. Should investors start forgiving the Cambridge Analytica transgression, TECL would likely rally. If Facebook the #DeleteFacebook movement has chops, TECS may remain the preferred play for risk-tolerant traders.

“While the logic of a social media movement to delete a social media app is a little specious, it has reportedly caused an estimated 9 percent of users to terminate their account, with 17 percent of those surveyed saying they did delete the app from their phone, but not their account,” said Direxion.

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